Tuesday, May 25, 2010

You have to choose (as a voter) between trusting to the natural stability of gold and the natural stability of the honesty and intelligence of the members of the Government. And, with due respect for these gentlemen, I advise you, as long as the Capitalist system lasts, to vote for gold.

George Bernard Shaw, 1928

Linked below is among the most well-written and brilliant analysis of how the Central Banks conspire to suppress the price of gold and how they are using GLD for this purpose. Reports about the fraudulent business structure of GLD have been published ad nauseum, including one by me, but this forensic accounting anlysis by Reg Howe is nothing short of remarkable and he clearly lays out the argument, supported by data taken directly from BIS (Bank for International Settlements - the global Central Bank of Central Banks) quarterly documents. Here is one of the salient quotes, to wet your appetite and stroke your curiosity:

In recent months, while GLD has generally sold at a slight discount to net asset value, other bullion funds with more transparent and credible custodial and auditing procedures have commanded significant premiums. E.g., Central Fund of Canada (CEF), Central Gold Trust (GTU), Sprott Physical Gold Trust (PHYS). Anecdotal evidence also continues to surface of premiums for spot delivery of physical metal or cash settlement in lieu of physical.

Gold forward rates as reported by the London Bullion Market Association (www.lbma.org.uk) have remained positive territory, but accompanied by sporadic negative lease rates at the shorter maturities. See Gold Derivatives: The Tide Turns (5/25/2009), and materials cited. At the LBMA, therefore, gold continues to avoid backwardation, but only because central banks continue to lend at historically very low lease rates.

It is a strange situation. Gold for spot delivery and bullion funds with high credibility for physical possession of metal in the amounts claimed are selling at premiums over paper of lesser reliability. But where gold is arbitraged against currencies on the basis of relative interest rates, it remains in contango. Freer private markets are increasingly disconnecting from more regulated and controlled official markets. Backwardation is arriving in gold, but ass backwards. Of course, nobody should be surprised. That is the way central banks typically operate.

Here is the link to the full report - please take the time read it thoroughly: LINK

For the record, until GLD can prove that its Custodian AND the subcustodians possess every single bar of gold listed on GLD's website - that these bars are not just paper swap transactions with U.S. and European Central Banks, GLD shareholders are highly exposed to an Enron/Refco/Bear Stearns type of price collapse. The instant a big holder of GLD tries to exchange its shares for a couple hundered tonnes of GLD's gold -and GLD blinks and hesitates on the delivery - the price of spot gold will shoot to the moon and the price of GLD will have an "air pocket" plummet.

A long-time investment advisor colleague of mine remarked that he had put his clients in GLD today. I replied, I hope you are not holding GLD when it's exposed. He replied that he needed the relative liquidity of GLD for the size he was buying. I replied that the second GLD is exposed, GLD will go "no bid" and the only thing liquid will be the brown substance in your boxer shorts. Not only that, your phone will start ringing off the hook from lawyers who are filing "breach of fiduciary duty" lawsuits.

For all you GLD loyalists, I have just one question: "Do you feel lucky, punk?"

Playing Devil's advocate for a moment: If the market is so rigged, why would someone put their hard earned money into it and if the fraud is so easily exposed, why are "they" still getting away with it?

The only way for a small investor to make a buck in this is to have physical bullion and sell at a nice spot price plus any premiums at the time.

If you ever want to see your Congressman turn seven shades of vague, ask him, "Is it true thatthe Treasury Department- "the people" owns no gold bullion whatsoever, but it is owned by the Fed?(which has no obligation to share with anyone)

LOL Rodd. In Colorado the marijuana grower supply the "caregivers" with medical marijuana - it's the fastest growing source of tax revenue on the planet.

Bronto: make sure you have plenty of margin and keep rolling those babies. If GLD gets exposed those things will double in less than a week, although you might have to take cash settlement. At least it will index gold. GLD will be Enron-ized...

The real play here would be to take delivery of as much non-tungsten infused comex gold as you can before they shut it down, short an equal amount of GLD. Wait about 6-12 months. You might have the lowest risk, highest return real gold trade on.

That's a great idea Anonymous. We have looked at actually putting that hedged trade on using CEF when it gets to a double-digit premium but you can't get a borrow on CEF. Of course, the instant GLD is exposed, the premium on the bona fide trusts will double.

This should be in full swing when the GLD vs COMEX gold goes pop providing a nice backdrop for the declaration of martial law. I think you will end up owing on your gld short and having to wait for martial law to end before getting paid on your COMEX long.

Best of luck.

Why don't you try to convince your broker to accept a North Korean depositary receipt or even better still a Siberian gold producer forward to support your short.

Bronto, you would be taking delivery each month of one contract of gold and shorting 1000 GLD against the 100 bar of physical. It's a hedge play in 2 respeots: 1) GLD's slowly erodes over time vs. NAV because of the way it accounts for expenses. 2) the day that GLD is exposed, your physical gold will do a moonshot and the price of GLD will be cut in half. it's a great hedge idea and would great a trade to put on on a leveraged basis.

I dunno Hal. Maybe he's more interested in getting longer physical gold than he's worried about paying an extra $20/oz when he knows the price of physical gold has at least a double in it over the next 24 months...you should email him and ask him. I think Jesse said he has to have the cash in hand before he can start buying.

Dave--perhaps the answer lies in when the premiums get too high? However, PHYS premiums have been up there in nosebleed territory (CEF and GTU too which tells you something about the concept of supply and demand) so just to poke this around, why not set the offering for say last Friday knowing a cap is being placed on PM?

Maybe he does not want to become too hi profile with whoever is farting around with PM?

And is there anybody here that does not game this cartel action ourselves in some way shape or form even as we are whining?

I might just e mail Sprott. I had bought some PHYS when it was first issued and like the arbitrage with CEF or GTU the premium had just got too hi. I used to sell CEF and GTU ahead of a perceived new offering and get into GLD and SLV but now just too afraid of that risk.

I guess GLD is ok if its a small part of ones PM holdings and you know the issues and its just a trade.

It's a good question on the timing of his decision to float stock. Perhaps the answer is part administrative - it's very hard to perfectly time the market with a stock deal given all the bureaucratic hoops you have to jump thru - and part market - rather than worrying about getting long when gold is at $1180, maybe he's worried about not getting long here and gold may move up to $1300 quickly. Certainly it's to the benefit of existing trustholders to sell stock with a double digit premium and buy physical at spot.

I'm excited to see the response of the premium today. We know CEF's premium tanks down close to zero when it issues more stock. But CEF is different than PHYS because of the delivery feature with PHYS. My bet would be that the PHYS premium holds up better...we'll see...

LOL. He reminds of the chararcter Stuttering John from the Howard Stern show in the 1990's. Stuttering John was hilarious. I'll never forget the interview, captured on video, when he asked Ted Williams if he had ever farted in the catcher's face when he was at bat. I thought Ted Williams was going to murder Stuttering John LOL.

I still am firm on my dollar call. But it doesn't matter if I'm right or wrong, my gold holdings have appreciated nicely vs. the dollar this year...

Eric Arthur Blair aka George Orwell

"Hope" is not a valid investment strategy

Full Time Jobs Over Last 5 Years

Is Your Gold Missing?

Why Gold?

Gold is the world's oldest currency. You exchange your fiat currency (dollars, euros, yen, yuan) into gold as an insurance policy against catastrophic Central Bank and Government policies which serve to destroy the value of fiat currencies and destroy democracy.

Gold can ONLY be considered an investment to the extent that it remains significantly and historically undervalued in relation to the fiat currencies against which its value is measured. Otherwise it remains the world's oldest currency and is completely free from the counterparty risk associated with currency by Government fiat (i.e. fiat currencies rely on a Government's "full faith and credit.")

Epic Quote - "Jesse" Sent This To Me

"The world will soon wake up to the reality that everyone is broke and can collect nothing from the bankrupt, who are owed unlimited amounts by the insolvent, who are attempting to make late payments on a bank holiday in the wrong country, with an unacceptable currency, against defaulted collateral, of which nobody is sure who holds title." - Anonymous

The Basic Fundamental Problem

What's the solution?

“THERE IS NO MEANS OF AVOIDING THE FINAL COLLAPSE OF A BOOM BROUGHT ABOUT BY CREDIT EXPANSION. THE ALTERNATIVE IS ONLY WHETHER THE CRISIS SHOULD COME SOONER AS THE RESULT OF A VOLUNTARY ABANDONMENT OF FURTHER CREDIT EXPANSION OR LATER AS A FINAL AND TOTAL CATASTROPHE OF THE CURRENCY SYSTEM INVOLVED.”

Ludwig von Mises – Austrian Economist (1881- 1973)

Quote Of The Month Courtesy of "Jesse"

Unfortunately for Larry Summers, Ben Bernanke, and their friends at the BIS, they have not yet figured out how to print physical gold, silver, and other essential commodities, and the world is reaching the point where it might simply start ignoring the New York based markets with respect to essential commodities such as basic materials, oil, foodstuffs, and the like, as they become increasingly irrelevant, fraudulent, and Orwellian. And then where will the financial engineers be, except with no more excuses and no place to hide?

Great Quote From Jim Rogers On Govt CPI Reporting

JR: I mean, we have inflation now. If you go to the shop, whether it’s groceries, or education or insurance or health care, prices are going up for everything. The government lies about it in the US. Some countries lie, many countries don’t: Australia, China, India and Norway. Many countries don’t lie about it and acknowledge that we have inflation. Others lie about it, the UK and the US, but if you go shopping you know prices are up.

Q: Are you saying that the American Consumer Price Index (CPI) published by the US Bureau of Labor Statistics is a lie? JR: In my opinion, yes, of course it is. Have you looked at it? They’ve changed their accounting several times in the past few decades. When housing was 20% to 25% of the CPI and housing was going up, they didn’t count it, saying rents weren’t going up, and then when home prices started going down, they counted it. It’s the same with many things. It’s staggering some of the tortuous reasoning that the BLS has used over the past 25 or 30 years. When the price of gasoline goes up, they say it’s not really going up because it’s better gasoline, better quality, therefore you’re getting more for your money. I mean, it’s endless, the stuff that they say and for some reason people sit there, although more and more people are catching on, and accept what the government says.

Priceless Quote From Richard Russell

On Larry Summers: This doofus practically ruined Harvard when he headed it. I can't think of a worse choice to be chief economic advisor. I wouldn't trust Summers to manage a Starbucks franchise.

Quote of the Week

"The primary function of a Central Bank is to engage in the massive transfer of wealth from the middle class to the wealthy elite. The Federal Reserve was set up to do this with the blessing and support of Congress." - Dave in Denver

If you refuse to believe the above, please read "The Creature From Jekyll Island: A Second Look at the Federal Reserve" by G. Edward Griffin and then explain to me why the Senate voted down the Vitter Amendment and Congress refuses to pass a law requiring a full audit of the Fed, even though the Fed is using taxpayer-backed money to bailout Wall Street and Europe.

Quote of the Month

And very relevant in the context of yesterday's post about gold moving higher against all fiat currencies:

Just imagine what would happen if a mere ten percent of the money currently going into bonds were instead to go into gold. As in 1972, the real move has yet to begin.

- Murray Pollit, Pollit & Co.

A Picture Says It All...

www.moneyandmarkets.com

Golden ore samples produced by Eurasian Minerals

Undisclosed exploration site

The Next Reserve Currency?

1 oz. Chinese Panda

Guess who said this?

Rising prices of precious metals and other commodities are an indication of a very early stage of an endeavor to move away from paper currencies...What is fascinating is the extent to which gold still holds reign over the financial system as the ultimate source of payment.

-Alan Greenspan, 9 Sep 2009

THIS is what REAL money looks like

1 oz. Gold Eagles

Alan Greenspan said what?

“Deficit spending is simply a scheme for the ‘hidden’ confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights.”

From "Gold and Economic Freedom" a 1966 Essay by Alan Greenspan

About Me

I spent many years working in various analytic jobs and trading on Wall Street. For nine of those years, I traded junk bonds for a large bank. I have an MBA from the University of Chicago, with a concentration in accounting and finance.
Currently I co-manage a precious metals and mining stock investment fund in Denver.
My goal is to help people understand and analyze what is really going on in our financial system and economy.